A no deposit loan is a home mortgage that does not require a deposit, enabling people without a lot of money that is immediately available to purchase a house. This loan covers the entire cost of the house and sometimes even legal fees, allowing the borrower to purchase a house with very little or no money upfront. The criteria for getting a no deposit loan is usually quite strict, often requiring the borrower to prove that he or she has a decent income and permanent employment. No deposit loans typically have higher interest rates and fees than regular mortgage loans. Due to this, it is usually best to take out this type of loan only when the home is certain to increase in value or the higher interest rate outweighs the cost of renting.
Borrowers are often advised to be cautious when opting for a no deposit loan over a regular mortgage with a down payment. If the home-buyer can afford to pay a down payment, he or she will generally end up paying less for the home in the long run. No deposit loans take advantage of the fact that the home-buyer wants to purchase now, and is either willing to pay much more or does not know exactly how much it will cost. Borrowers may find that no deposit loans are not a way to save money or put off paying until later with no repercussions. These loans are usually the price of the mortgage, plus the down payment that was not paid at the beginning, plus the accrual of interest over the years.
No deposit loans tend to be more risky than regular mortgage loans. If the home-buyer loses his or her job, the higher monthly payments can quickly diminish any savings. The property value could also plummet or stagnate for many reasons, leaving the home-buyer to make payments on a house that is not worth the full amount of the loan.
A no deposit loan has some upsides and can work well for many people, however. If the home-buyer has a permanent job with a steady income, the pros can outweigh the cons. The same goes for a house that is guaranteed to increase in value over the course of the loan, or if the price of renting a house is not significantly cheaper than purchasing one with a no deposit loan. Even so, home buyers should weigh all of their loan options due to the high interest rates and extra fees that a no deposit loan will likely have.